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Federal Regulatory Agency Sues Goldman Sachs for Risky Mortgages

Source: AP

Posted on 10 Aug 2011

The U.S. regulator of credit unions on Tuesday sued Goldman Sachs & Co. for more than $491 million in damages over losses incurred by two failed credit unions that purchased mortgage-backed securities underwritten by the investment bank.

The complaint filed by the National Credit Union Administration in U.S. District Court in Los Angeles is the latest lawsuit brought by the federal regulatory agency against a major bank as it seeks to recover billions in losses related to risky mortgage-backed securities that brought down credit unions in recent years.

Buyers of mortgage-backed securities, mostly banks, pension funds and other big investors, made money from the investments if the underlying debt was paid off. But as U.S. homeowners started falling behind on their mortgages and defaulted in droves in 2007, the securities failed and their buyers lost billions.

In the complaint, which also names as defendants several issuers of mortgage-backed securities, regulators claim that the documents used in offering the securities contained untrue statements or omissions as to how risky the investments were.

As a result, U.S. Central Federal Credit Union in Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif., acquired the mortgage-backed securities, believing the risk of loss was minimal, according to the complaint.

However, even though virtually all of the securities had a triple-A rating, they represented a substantial risk of losses, the NCUA claims. And when the investments' market value plummeted, the credit unions -- two of the nation's largest -- failed.

The NCUA placed the two credit unions into conservatorship in March 2009. In October of 2010, it placed them into involuntary liquid

Comments

I am glad that there are some consequences to this fiasco and I hope they are obligated to pay and not with taxpayer dollars. Good stuff. They not only duped credible lenders but duped people into mortgages knopwing they had no long term means to pay it back They deserve everything they get and more.

I am glad that there are some consequences to this fiasco and I hope they are obligated to pay and not with taxpayer dollars. Good stuff. They not only duped credible lenders but duped people into mortgages knopwing they had no long term means to pay it back They deserve everything they get and more.